Sega to Quit Production of Dreamcast Console, Develop Games for Rivals

Sega Enterprises will stop manufacturing its money-losing Dreamcast video game console in March to focus on the company’s more lucrative software business, said Peter Moore, president of Sega of America.

Sega instead will create games for a variety of consoles and devices rather than make games only for the Dreamcast.

Moore confirmed that Sega has agreements to make video games for Nintendo’s upcoming Game Boy Advance device and for Sony’s new PlayStation 2 console. Sega is also in talks with Microsoft Corp. to make games for the Xbox game console, set to debut in the fall, Moore said.

Moore’s announcement confirmed widespread rumors in recent weeks that Sega would quit the console market.

Sega’s end to its 11-year involvement in the console business amounts to a capitulation to rivals Sony and Nintendo. Sega has sold a little more than 6 million Dreamcasts worldwide, more than half of that in the U.S. But that won Sega a meager 15% console share in the U.S., with Sony and Nintendo claiming the balance.

“It’s a sad day whenever the underdog gets licked,” said P.J. McNealy, an analyst with Gartner Group Inc. “It’s also a sad day for Dreamcast consumers. There’s no commitment to making software for the Dreamcast in 2002.”

Sega will stop manufacturing the Dreamcast on March 31, the end of its fiscal year. To unload its existing inventory, on Feb. 4, Sega will slash prices of its Dreamcast from $149 to $99 in the U.S. Sega will also release 30 new games this year in the U.S. for the console.

But Dreamcast owners cannot be assured a supply of new games after 2002.

On Monday, Sega announced plans to license its Dreamcast chipset to Pace Micro Technology, a TV set-top box manufacturer in London. Sega will also make games for Motorola cell phones and Palm-based hand-held organizers.

In the next few weeks, Sega will lay off an undisclosed number of employees in its San Francisco office, which currently employs 195 workers, Moore said.

A marketing executive from the footwear industry, Moore also addressed rumors that his own job might be in jeopardy.

He said his fate was in the hands of executives in Japan, where Sega is based. “I don’t make that call.”